"What do the Central Pacific Railroad company, Enron, and auto dealers all have in common? The incentive to score big with other people’s money ... " [More]
Every company with outside investors is an example of playing with other people's money. That is the whole point of having investors in a business.
The important point, instead, is whether the management has skin in the game.
So the Central Pacific Railroad is a mistaken example, because the big four would have lost their entire personal fortunes if the CPRR had not been a success. This is because they as CPRR investors as well as managers had unlimited liability, not like investors in modern corporations or limited liability companies who can only lose the amount they invest, or Enron managers who (unlike the railroad barons) had little of their own money invested.
Maybe that is why the Central Pacific Railroad was completed, without subsidy, at no ultimate cost to federal taxpayers, on budget, and seven years ahead of schedule while Enron collapsed.
Every company with outside investors is an example of playing with other people's money. That is the whole point of having investors in a business.
ReplyDeleteThe important point, instead, is whether the management has skin in the game.
So the Central Pacific Railroad is a mistaken example, because the big four would have lost their entire personal fortunes if the CPRR had not been a success. This is because they as CPRR investors as well as managers had unlimited liability, not like investors in modern corporations or limited liability companies who can only lose the amount they invest, or Enron managers who (unlike the railroad barons) had little of their own money invested.
Maybe that is why the Central Pacific Railroad was completed, without subsidy, at no ultimate cost to federal taxpayers, on budget, and seven years ahead of schedule while Enron collapsed.
See related discussion, "No government subsidies for the transcontinental railroad."
ReplyDelete